With the market’s gains in recent days, many investors may be getting more confident that a big correction is not on the cards. However, while technical signals are looking good, there is some evidence that the big rally in stocks is set to end. One of the more worrying signs is that major tech companies like Alphabet, Apple, and Facebook, are all in decline. These stocks represent a major share of total market capitalization, so losses there may wound the S&P 500 and Nasdaq as a whole. Yields are another area to keep an eye on, as they were falling recently (bearish for stocks), but have stalled.
FINSUM: There are, as ever, some bearish indicators on the margins. But as has been the case for several years, this does not mean the market will fall.
A lot of articles came out today warning that Apple’s new iPhone 8 sales may be slow. Most sources saw this as a sign of weakness for Apple. To be clear, the iPhone 8 is not the groundbreaking new iPhone you’ve been hearing about, that is the iPhone X. Rather, this is the updated version of the iPhone 7. Despite the fears, the Wall Street Journal took the opposite line, arguing that weak demand for the new device might show there is a lot of excitement for the iPhone X’s release. Apple decided to stagger the debut of the phones, with the iPhone 8 coming out earlier.
FINSUM: We do not think weak iPhone 8 demand is necessarily either bad or good for the iPhone X. For example, even if demand is weak for the 8, it does not mean there is strong demand for the X.
In what feels like another escalation of the tension between North Korea and the US and its allies, Kim Jong Un yesterday threatened to detonate a hydrogen bomb over the Pacific. The comments were a retaliation for President Trump’s speech at the UN this week, where he threatened to totally destroy North Korea. Trump responded by calling Kim a “madman”. The market reacted more strongly to the comments than recently, with safe haven assets seeing gains.
FINSUM: It almost feels like North Korea is threatening the US and its allies to the point that they will have no choice but to act. Pyongyang might be over-playing its “insurance policy” angle.
Amazon’s plans for newly acquired Whole Foods are becoming clear. While the big wonder is how Amazon may use the grocer in its distribution plans, two things have now become clear. Firstly, Amazon is seeking to turn Whole Foods into a more disciplined and competitive store, firstly by cutting prices, and now, by consolidating power over merchandising decisions. Whole Foods formerly ran a more fragmented model where individual store operators had much more control over which products they ran, but Amazon is pulling that back.
FINSUM: We did not expect Amazon to run Whole Foods in such a different way, and we don’t think the market did either. We expected that they just wanted the store to enhance their food distribution efforts, but they obviously want Whole Foods to be a strong standalone grocer.
It is hard to imagine Goldman Sachs as middling or even, dare we say it, an underdog. However, that is exactly the position the company is in, at least for the moment. Goldman’s rankings in the fixed income league tables leave it tied for third in an area it usually dominates. It has never been ranked lower than second in fixed income since 2007. Additionally, its shares have fallen this year while those of all other major banks have risen, leaving at a relatively weaker valuation than its rivals, such as Morgan Stanley.
FINSUM: We think that Goldman Sachs is a well-run organization and we expect their earnings will bounce back quickly which means now may be a good time to buy.